This study relates Foreign Direct Investment (FDI) to economic growth,
institutional quality and manufacturing value added. To this end, it
uses dynamic panel data techniques that allow for parameter
heterogeneity and possible non-stationarity in the series. The results
confirm that economic growth, institutional quality, and natural
resources, each play a positive role in attracting FDI. Besides,
institutional quality is not an 'environmental variable' that simply
determines economic growth and FDI inflows; it is itself affected both of
these variables. Specifically, economic growth enhances institutional
quality, whereas FDI appears to raise corruption and undermine the rule
of law and accountability. The evidence found also reveals the existence
of 'institutional' resource curse - emanating from both natural
resources and FDI. Furthermore, FDI has contributed to the 'premature'
deindustrialisation of the region, except in a few cases where it is
non-resource-seeking. While most of these results are in agreement with
some previous studies, the study also identifies detrimental
institutional and deindustrialising effects of FDI which have hitherto
been overlooked. A policy implication is that countries should be
selective on the type of FDI they try to attract by weighing its
positive growth effect against its deindustrialising and adverse
institutional effects.